Goldman Sachs Investor Research - Discovery Metals Limited

7 October 2010 Discovery Metals Limited
Profit & Loss
(A$m)
Year end June 2010a 2011e 2012e 2013e 2014e
Sales Revenue 0 0 63 420 445
Operating costs 5 11 39 175 181
Operating EBITDA -5 -11 24 245 264
D&A 0 0 4 27 29
Operating EBIT -5 -11 19 218 236
EBIT -5 -11 19 218 236
Boseto 0 0 27 221 237
Other -5 -11 -8 -3 -2
Net Interest Exp./(Rev) -1 -1 -12 -24 -31
PreTax Profit (pre ab's) -5 -10 32 242 267
Tax Expense (pre abs) 0 0 13 106 119
OEI 0 0 0 0 0
NET PROFIT (Pre NRI's)1 -5 -10 19 136 148
Abnormal Items (after Tax) 0 0 0 0 0
Reported NPAT (post ab's) -5 -10 19 136 148
Sales Growth (%) -100% 567% 6%
Op. EBITDA Growth (%) N/A N/A N/A 933% 8%
NPAT (Adj.) Growth (%) N/A N/A N/A 629% 8%
EPS (Adj.) Growth (%) 629 8
Op.EBITDA Margin (%) 37.7% 58.4% 59.4%
Interest Cover - EBITD (X) 7.8 8.4 -1.9 -10.0 -8.4
Return on Equity 5 (%) -6% -15% 23% 62% 39%
Source: Company data, GS&PA Research estimates
The investment arithmetic is shown below:
Investments Statistics
Year end June 2010a 2011e 2012e 2013e 2014e
Net Profit (Reported) (A$m) -5 -10 19 136 148
- EPS (Reported) 1 (¢) -2.0 -3.6 6.9 50.4 54.7
- PER (Reported) 1 (X) -63.1 -35.9 18.6 2.5 2.3
NET PROFIT (Adj.) 2 (A$m) -5 -10 19 136 148
- EPS (Adj.) 2 (¢) -2.0 -3.6 6.9 50.4 54.7
- EPS Growth (%) -62 77 -293 629 8
- PER (Adj.) 2 (X) n.a n.a 18.6 2.5 2.3
Dividend (¢) 0.0 0.0 0.0 0.0 8.0
- Yield (%) 0.0% 0.0% 0.0% 0.0% 6.2%
- Franking (%) 0% 0% 0% 0% 0%
Free Cash Flow (A$m) -16 -13 11 199 135
- P/FCF 4 (X) -18.8 -26.2 31.7 1.7 2.6
EV(Adj.)/EBITDA 3 (X) -48.7 -33.0 20.8 1.1 0.5
Avg. Shares (diluted) (mill) 229 270 270 270 270
Source: Company data, GS&PA Research estimates
Earnings sensitivity to moves in copper price and exchange rate
Given the project is early-stage, we do not have any relevant sensitivity analysis to the
project until FY13. The table below indicates that both currency and metal price fluctuations
have a material impact on earnings.
Sensitiity Analysis
Year End Dec 2010a 2011e 2012e 2013e 2014e
Currency +1¢ n.a n.a n.a -2.1 -2.4
Copper US5¢/lb n.a n.a n.a 2.5 2.4
Source: Company data, GS&PA Research estimates
Balance Sheet
DML has outlined its intention to finance the Boseto project with 60% debt. We believe that
this level of debt is too aggressive for a single-mine development company. When the final
financing arrangements are completed we will adjust the financials for the actual debt:equity
mix.
Goldman Sachs & Partners Australia
Investment Research
All figures in A$ unless otherwise advised 14